'If stocks come back in favour globally, India will do well'

"Fiscal year 2017-18 can show good profit growth. The national balance sheet has improved due to crude's fall and high government spending will improve capital utilization," he said.Below is the verbatim transcript of Amish Shah and Parthiv Dalal’s interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18.Sonia: How has the response been? What has the investor sentiments been at the conference? Good day to be having one considering that the Sensex is up 600 points but do people believe that the worst is over for the markets?Shah: I think you have hit the nail on the head, the investors are quite upbeat. The market being up today is just a one factor but investors across the board be it private equity, be it large long only funds, hedge funds everyone seem to be quite upbeat about the market at these levels. We were talking with the few corporate as well and they themselves are fairly confident that next year is going to be much better than what we had this year.Anuj: How to approach this market from here on because this has been a ranked bad year for portfolio year. Last year was good, a lot of stocks did well bottom up this year it was almost an exact reverse. At least the start has been exact reverse. From portfolio positioning point of view how would approach rest of the year?Dalal: There are some bargain levels in the market. Thing is, important barometer is Corporate India have capacities in place. Utilisation is not so good so we are looking at governments spending to prop consumption and that will improve capacity utilisation as well as operating leverage for them. So, I think this may be just a year for high beta wherein you have stocks available at discounted valuations and given a low base, given a backdrop lower interest rates, healthy earned balance sheet 2017-2018 can really show some good profitability growth. So, investors may just end towards high beta names which are really available cheap.Sonia: The next big trigger is what happens in the Budget and I am sure you guys had a lot of discussions about that. What is the key expectation from the Budget this time around and will the government have room to expand on Budget capital spending considering the need to provide for wage hikes and the 7th pay commission etc. Dalal: Thanks to weaker crude, the national balance sheet is pretty healthy now. So, lot of expectation from that front, from government spending side is there. Even rationalisation of taxes should really be a win-win for all.Anuj: Problem for this market has been the foreign fund flows. Do you get a sense that the outflows are going to continue and could that be a big headwind for the market even if domestic funds sought of compensate that. However, our markets rarely move a big time unless we have foreign institutional investors (FIIs) flow supporting the markets. Shah: You are right on that count, in fact we were also talking to few FII investors here and they themselves are receiving negative flows. There is also a threat looming around the corner with the Fed may go for one more round of hikes. If that were the scenario I think we are not going to see FII flows coming back in the market, not immediately anyways. So, having said that people are still upbeat because amongst the emerging market pack India is growing the fastest, India is best placed. India has all the levers in place. So, if at all equity as an asset class comes back in flavour then India is going to be a big beneficiary.Sonia: When you spoke to a lot of these FIIs what is the sense you are getting about sectors or stocks that they are interested in if and when the market does stabilise where do you see the money come in first? Shah: It will be the high beta names and it will more of the largecap names. The largecap is where we have had the majority interest from the FIIs. Considering most of the stocks are closed to their 52 weeks lows they do perceive a lot of values at these levels, case in point being PSU banks.Some of the PSU banks are closed to almost 2008 lows in that sense. So, having said that there is enough capacity for them. They are looking at sectors like PSU Banks, may be something on the infra side as well. Stocks like Larsen & Toubro (L&T) are very closed to their 52 week lows so that is one stock in particular that they were very positive on.Anuj: Do you get a sense that what we have seen today in Larsen & Toubro could be more than short covering and could we see may be another 10-15 percent rally over the next few months or so in Larsen & Toubro?Shah: It is very difficult to point out in the short-term but there is definitely value at these levels and anyone specially the long only funds who have a three year horizon definitely are buyers at these levels. Sonia: There are so many companies names like Maruti Suzuki etc that have corrected about 20-30 percent more their top. Where do you see a lot more interest now?Dalal: As I mentioned wherever we have a lower capacity utilisation company like Siemens where probably utilisation is around less than 60 percent. We haven’t really seen such capacity utilisation in some time before now. So, that is where you need to keep a watch. That is where operating leverage will come into play. So, the earnings growth is finally what we all look at. So, that is where you are going to see so we should be looking at such companies where there is lot of scope for improving operating leverages.